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What are the Two Major Constituents of India Money Market?
Money market is a centre where short-term funds are supplied and demanded.
Thus, the main constituents of money market are the lenders who supply and the
borrowers who demand short-term credit.
1. Supply of Funds:
There are two main sources of supply of short-term funds in the Indian money
market: (a) unorganised indigenous sector, and (b) organised modern sector.
(i) Unorganized Sector:
The unorganised sector comprises numerous indigenous bankers and village
money lenders. It is unorganized because its activities are not controlled and
coordinated by the Reserve Bank of India.
(ii) Organized Sector:
The organized modern sector of Indian money market comprises : (a) the
Reserve Bank of India; (b) the State Bank of India and its associate banks; (c)
the Indian joint stock commercial banks (scheduled and non-scheduled) of
which 20 scheduled banks have been nationalised; (d) the exchange banks
which mainly finance Indian foreign trade; (e) cooperative banks; (f) other
special institutions, such as, Industrial Development Bank of India, State
Finance Corporations, National Bank for Agriculture and Rural Development,
Export-Import Bank, etc., which operate in the money market indirectly through
banks ; and (g) quasi- government bodies and large companies also make their
funds available to the money market through banks.
2. Demand for Funds:
In the Indian money market, the main borrowers of short-term funds are: (a)
Central Government, (b) State Governments, (c) Local bodies, such as,
municipalities, village panchayats, etc., (d) traders, industrialists, farmers,
exporters and importers, and (e) general public.
Q. 1 : What is Capital Market ? Explain the structure and constituents of Capital
Market in India.
Ans. A) CAPITAL MARKET :Capital market deals with medium term and long term funds. It refers to
all facilities and the institutional arrangements for borrowing and lending term
funds (medium term and long term). The demand for long term funds comes
from private business corporations, public corporations and the government.
The supply of funds comes largely from individual and institutional investors,
banks and special industrial financial institutions and Government.
B) STRUCTURE I CONSTITUENTS I CLASSIFICATION OF
CAPITAL MARKET :Capital market is classified in two ways
CAPITAL MARKET IN INDIA
Gild – Edged
Gilt - Edged Market :Gilt - Edged market refers to the market for government and semigovernment securities, which carry fixed rates of interest. RBI plays an
important role in this market.
Industrial Securities Market :It deals with equities and debentures in which shares and debentures of
existing companies are traded and shares and debentures of new companies are
bought and sold.
Development Financial Institutions :Development financial institutions were set up to meet the medium and
long-term requirements of industry, trade and agriculture. These are IFCI,
ICICI, IDBI, SIDBI, IRBI, UTI, LIC, GIC etc. All These institutions have been
called Public Sector Financial Institutions.
Financial Intermediaries :Financial Intermediaries include merchant banks, Mutual Fund, Leasing
companies etc. they help in mobilizing savings and supplying funds to capital
The Second way in which capital market is classified is as follows :CAPITAL MARKET IN INDIA
Primary Market :Primary market is the new issue market of shares, preference shares and
debentures of non-government public limited companies and issue of public
This refers to old or already issued securities. It is composed of industrial
security market or stock exchange market and gilt-edged market.